2016 (1) TMI 571 - AT - Income Tax

Invocation of provisions of section 73 - Loss on sale of investment - whether business loss or speculation loss - whether the profit on sale of shares constitutes business income or capital gains in order to ascertain as to whether the shares were purchased by the assessee as investment or stock in trade? - Held that - The intention of the assessee becomes relevant which can be gathered from the facts available on record. Admittedly, it is not the only criteria, which can be adopted as a conclusive test and has to be analyzed on the touch scale of various judicial pronouncements/circulars issued from time to time by the CBDT. The treatment given to such purchases in its books of accounts by the assessee is also one of the relevant factor, whether it is treated as investment or stock in trade and also whether shown opening/closing stock or shown separately as investment or non-trading asset. Also whether the assessee borrowed money for purchasing such shares and paid interest thereupon. The frequency of transactions, the dates of purchase and sale holding period also indicative of the intention of the assessee. It is not worthy that in earlier years, the department had been accepting to the stand of the assessee as investment in shares, therefore, unless and until contrary facts are brought on record, a different view is not expected, on the principle of consistency. So far as, invocation of section 73 of the Act is concerned, the case of the assessee, is covered by the ratio laid down by Hon ble Delhi High Court in Bhagwan Das Rameshwar Dayal (1984 (5) TMI 35 - DELHI High Court ). No wise businessman will suffer loss neither there is intention to suffer loss rather the investment is gainfully made for earning income, thus, treating the business transaction as speculative in nature is the subjective approach of the Assessing Officer. We find no infirmity in the conclusion of the ld. Commissioner of Income Tax (Appeals) setting aside the invocation of provisions of section 73 treating the loss on sale of investment as business loss and not speculation loss - Decided in favour of assessee So far as, allocating expenses towards speculative transaction are concerned, since, the above grounds have been decided in favour of the assessee, by holding that it was not a speculative business transaction, therefore, we find no merit in the ground of the assessee. The total turnover of the assessee is ₹ 7,76,72,915 and loss is about 1% of the total turnover. Thus, we find no infirmity in upholding the addition to the extent of ₹ 10,08,268/- and deleting the addition of ₹ 46,50,365/-. This ground of the Revenue is therefore, dismissed. Addition u/s 36 - payment of provident fund contribution was made beyond the prescribed due date - CIT(A) deleted the addition - Held that - We note that assessee made payment of ₹ 1,94,268/-, being the employees contribution, of the month of September 2008 to the provident fund account beyond the due date i.e. 15/10/2008. The assessee made the payment within the grace period of five days, thus, there is no delay of payment the amount. The case of the assessee is covered by the decision from Hon ble Delhi High Court in CIT vs P. M. Electronics (2008 (11) TMI 3 - DELHI HIGH COURT) wherein, it was held that if the payment in PF and ESI account are made before the due date of filing of return u/s 139 of the Act then no disallowance of such payment is to be made u/s 43B of the Act. Thus, we find no infirmity in the conclusion of the ld. Commissioner of Income Tax (Appeals) - Decided in favour of assessee

Summary

Issues Involved:
1. Invocation of provisions of section 73 of the Income Tax Act, 1961, treating the loss on sale of investment as business loss and not speculation loss.
2. Allocation of expenses towards speculative business.
3. Allowance of claim under section 36(1)(va) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Invocation of Provisions of Section 73:
The Revenue challenged the order of the First Appellate Authority, which set aside the invocation of section 73 of the Income Tax Act, 1961, treating the loss of Rs. 20,70,934/- on the sale of investment as business loss and not speculation loss. The assessee, a private limited company and a member broker with NSE and BSE, engaged in various financial activities, including broking in shares and investment. The Assessing Officer (AO) treated the investment in shares as an adventure in the nature of trade, thus categorizing it as a trading asset, citing substantial funds utilized with a commercial motive leading to significant loss. The assessee contended that the investments were made with its own funds and were reflected as investments in the books of accounts. The Tribunal observed that a significant portion of the investments was in non-tradable shares of subsidiary and unlisted companies, and the assessee did not use borrowed funds for these investments. The Tribunal relied on the decision of the Hon'ble Bombay High Court in Gopal Purohit, which allowed maintaining separate portfolios for investment and business activities. The Tribunal concluded that the assessee's transactions were consistent with investment activities, and thus, the loss should not be treated as speculation loss under section 73.

2. Allocation of Expenses Towards Speculative Business:
The AO allocated Rs. 56,86,633/- as expenses towards speculative business, allowing only Rs. 10,08,268/- and disallowing Rs. 46,50,365/-. Since the Tribunal held that the transactions were not speculative in nature, the allocation of expenses towards speculative business was found to be without merit. The Tribunal noted that the total turnover of the assessee was Rs. 7,76,72,915, and the loss was about 1% of the total turnover. Therefore, the Tribunal upheld the deletion of the addition of Rs. 46,50,365/- and dismissed this ground of the Revenue.

3. Allowance of Claim Under Section 36(1)(va):
The AO disallowed Rs. 1,94,268/- under section 36(1)(va) on the ground that the payment of provident fund (PF) contribution was made beyond the prescribed due date. The assessee argued that the employee's share was paid within the grace period. The Tribunal noted that the payment was made within the grace period of five days and referred to the decision of the Hon'ble Delhi High Court in CIT vs P. M. Electronics, which held that if the payment to PF and ESI accounts is made before the due date of filing the return under section 139, no disallowance should be made under section 43B. Therefore, the Tribunal found no infirmity in the conclusion of the First Appellate Authority and dismissed this ground of the Revenue.

Conclusion:
The appeal of the Revenue was dismissed in its entirety. The Tribunal upheld the decision of the First Appellate Authority, concluding that the loss on the sale of investments should be treated as business loss, not speculation loss, and that the allocation of expenses towards speculative business was unwarranted. Additionally, the claim under section 36(1)(va) was allowed as the payment was made within the grace period. The order was pronounced in the open court on 26/10/2015.